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Post by Whizzo on Mar 26, 2024 9:54:27 GMT
Maybe we'll get deflation (unlikely) and the Tory MPs who spout bollocks about inflation going down a bit saving people money will finally be right?
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Post by Reviewer on Mar 26, 2024 9:56:50 GMT
How can inflation be too low when wages are nowhere near recovering the gap?
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mcmonkeyplc
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Post by mcmonkeyplc on Mar 26, 2024 10:10:14 GMT
That's another reason for it to be utter bullshit
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Post by manfromdelmonte on Mar 26, 2024 11:15:41 GMT
How can inflation be too low when wages are nowhere near recovering the gap? Because deflation is a far greater threat than inflation. An inflationary spiral is easy, if painful to get out of. You just crash your economy, like that crackpot in Argentina. A deflationary spiral is far hard. Falling prices encourages saving, which tanks liquidity, shrinking the economy and leading to further falls. Investors would have no confidence in government, businesses, individuals ability to service debt, so bond yields and interest rates would spike, compounding the problem further. The only way to make up for the erosive effects of inflation on living standards, is for growth to outstrip inflation over the long term.
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Post by Reviewer on Mar 26, 2024 11:22:44 GMT
They're not saying there'll be deflation though, just low inflation so things will still be getting more expensive.
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Post by manfromdelmonte on Mar 26, 2024 11:27:07 GMT
If inflation is too low, you run the risk of any economic shock pitching your economy into deflationary territory. Hence aiming for 2% inflation.
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mcmonkeyplc
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Post by mcmonkeyplc on Mar 26, 2024 11:31:48 GMT
Yes, but we're not at risk of inflation dropping below 2% anytime soon. Whoever these analysts are they need to give a damn good reason for why they think it's going to happen or they're just bullshit merchants.
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Post by manfromdelmonte on Mar 26, 2024 11:59:01 GMT
I'm not defending the analysis, I've not seen it. I'm just saying, even after a period where inflation has outstripped wage growth. Inflation can still fall too low, because the risk of deflation is the primary concern, not the restoration of living standards. I suspect they expect people to acclimatise to a lower standard of living.
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Post by stuz359 on Mar 26, 2024 14:20:30 GMT
What's interesting is that 2% inflation target. No one knows where it comes from, it's just some arbitrary figure, it's not based on any data.
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mcmonkeyplc
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Post by mcmonkeyplc on Mar 26, 2024 14:26:10 GMT
What's interesting is that 2% inflation target. No one knows where it comes from, it's just some arbitrary figure, it's not based on any data. Not everything is a conspiracy. www.bankofengland.co.uk/monetary-policy/inflation#:~:text=To%20keep%20inflation%20low%20and,people%20to%20plan%20their%20spending. To keep inflation low and stable, the Government sets us an inflation target of 2%. This helps everyone plan for the future. If inflation is too high or it moves around a lot, it’s hard for businesses to set the right prices and for people to plan their spending. But if inflation is too low, or negative, then some people may put off spending because they expect prices to fall. Although lower prices sounds like a good thing, if everybody reduced their spending then companies could fail and people might lose their jobs.
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mcmonkeyplc
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Post by mcmonkeyplc on Mar 26, 2024 14:29:58 GMT
What happens when inflation is too high, look at the 70's and early 80's. What happens when inflation is too low, look at Japan since the 90's. It's not rocket science. It's basic economics The 2% figure might be arbitrary but the principle is not.
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Post by Bill in the rain on Mar 26, 2024 14:42:08 GMT
Japan also has had a 2% inflation target for a number of years. I dunno where it came from originally, but it seems to be a common target for governments.
Personally, I think there are different kinds of inflation, and 2% could be great or terrible depending on what's driving the inflation. But I don't really know much about these things.
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Post by brokenkey on Mar 26, 2024 14:51:50 GMT
Does deflation ever happen? Sure, it's a bogyman, but whilst I can think of loads of examples of countries that have had hyperinflation, I can't think of one that hit the news with the disasters attributable to it.
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mcmonkeyplc
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Post by mcmonkeyplc on Mar 26, 2024 14:54:41 GMT
Does deflation ever happen? Sure, it's a bogyman, but whilst I can think of loads of examples of countries that have had hyperinflation, I can't think of one that hit the news with the disasters attributable to it. Yes, Japan for decades. They're only just coming out of it.
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Post by stuz359 on Mar 26, 2024 15:05:21 GMT
What's interesting is that 2% inflation target. No one knows where it comes from, it's just some arbitrary figure, it's not based on any data. Not everything is a conspiracy. www.bankofengland.co.uk/monetary-policy/inflation#:~:text=To%20keep%20inflation%20low%20and,people%20to%20plan%20their%20spending. To keep inflation low and stable, the Government sets us an inflation target of 2%. This helps everyone plan for the future. If inflation is too high or it moves around a lot, it’s hard for businesses to set the right prices and for people to plan their spending. But if inflation is too low, or negative, then some people may put off spending because they expect prices to fall. Although lower prices sounds like a good thing, if everybody reduced their spending then companies could fail and people might lose their jobs. I didn't mention a conspiracy theory, nor allude to one, 2% inflation is an arbitrary figure, it was only formally recognised as a target by Ben Bernanke in 2012.
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Post by Reviewer on Mar 26, 2024 15:07:18 GMT
And yet Japans GDP growth is better than ours. They’ve had a huge issue of an aging population (worse than us) which hasn’t helped either, but I’ve been to Japan and it doesn’t seem like a country that has major issues because of a lack of inflation.
Half of the inflation rate info is based on the price of fuel and other everyday essentials that people aren’t going to wait for.
I’m not an economist but it seems like it’s more complex than low inflation = bad.
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Post by jeepers on Mar 26, 2024 15:15:38 GMT
If the speed at which your bike falls over is zero mph and the speed at which your bike catches fire is four mph then setting a target speed of two mph is probably not a bad idea.
An arbitrary point between two bad things is a good thing.
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Post by gibroon on Mar 26, 2024 15:22:07 GMT
For a country that has been in deflation for 30 years, Japan doesn't seem to be doing bad for itself. I may be wrong, they may crippling debt but they seem to be way more advanced than the UK over those 30 years so it is hard to understand why it would be so bad.
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otto
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Post by otto on Mar 26, 2024 15:29:52 GMT
IANAEconomist but I've also never really understood the rationale behind this need for constant growth, which is obviously incompatible with sustainability. At some point surely a mature economy needs to find a way to just exist in some kind of equilibrium.
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Post by brokenkey on Mar 26, 2024 15:36:03 GMT
And yet Japans GDP growth is better than ours. They’ve had a huge issue of an aging population (worse than us) which hasn’t helped either, but I’ve been to Japan and it doesn’t seem like a country that has major issues because of a lack of inflation. Half of the inflation rate info is based on the price of fuel and other everyday essentials that people aren’t going to wait for. I’m not an economist but it seems like it’s more complex than low inflation = bad. exactly. You wouldn't describe Japan as a basket case economy.
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Bongo Heracles
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Post by Bongo Heracles on Mar 26, 2024 15:37:06 GMT
How are rich people going to extract even bigger dividends if growth plateaus?
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Post by manfromdelmonte on Mar 26, 2024 15:42:01 GMT
Japan's debt/GDP ratio is one of the highest in the world. Demographically it's tanking. But the economic reality of that hitting is currently one of those things like the US housing market crashing. It definitely won't happen, until it happens all at once.
Japanese people save far more than we do, which is a double edged sword. It means bond yields are suppressed, but the consumer side of the economy never gains pace. So like alcohol to Homer Simpson, it's the cause of and solution to its problems.
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Post by stuz359 on Mar 26, 2024 15:47:55 GMT
The BoJ is the one that has been buying Japanese debt. Take that out and you get below a 100% really quickly (can you be in debt to yourself?)
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otto
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Post by otto on Mar 26, 2024 15:59:40 GMT
You wouldn't describe Japan as a basket case economy. Lots of people do, all the time. I don't see why either, but economists always seem to cite Japan as an example to avoid. But as per my previous post surely there has to be a way to stabilise or even shrink an economy in a managed way without affecting living standards, because populations also shrink, and permanent growth is unsustainable (not to mention the political problem every mature society gets as soon as they become dependent on immigration to maintain that permanent growth).
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Post by Reviewer on Mar 26, 2024 16:44:35 GMT
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mcmonkeyplc
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Post by mcmonkeyplc on Mar 26, 2024 16:49:35 GMT
IANAEconomist but I've also never really understood the rationale behind this need for constant growth, which is obviously incompatible with sustainability. At some point surely a mature economy needs to find a way to just exist in some kind of equilibrium. Population growth is the only real reason. I agree that equilibrium should be found. Also....technology improvements cause growth and productivity to increase so it's not like all growth is unsustainable.
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Post by simple on Mar 26, 2024 16:51:45 GMT
What does inequality look like in Japan? Like do they have an asset stripping, wealth hoarding culture/class in the way the UK and USA do or is the money actually circulating in the economy? Would that make a difference?
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Post by grey_matters on Mar 26, 2024 17:16:46 GMT
IANAEconomist but I've also never really understood the rationale behind this need for constant growth, which is obviously incompatible with sustainability. At some point surely a mature economy needs to find a way to just exist in some kind of equilibrium. Population growth is the only real reason. I agree that equilibrium should be found. Also....technology improvements cause growth and productivity to increase so it's not like all growth is unsustainable. Any technological improvements that add energy to the system (barring efficiency improvements), add heat to the system. There's a limit to how much energy we can add without boiling ourselves* and efficiencies can only ever asymptotically approach 100%. So if growth in energy use can be considered a proxy for growth**, it can't be considered sustainable either. * and at 4.5% annual growth this occurs surprisingly quickly, leading to the fact that cheap abundant fusion energy might be a terrible thing ** my guess is that it kinda ballpark is (with caveats and loopholes) but I don't know economics well
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Post by clemfandango on Mar 26, 2024 17:25:08 GMT
Sunak being questioned by William Wragg today:
"Q: What do you think about Liz Truss’s claim that she was undermined by the deep state?
Sunak says that is a matter for her.
Wragg tries again, and again Sunak says that is a matter for her. Wragg asks if Sunak is a member of the deep state, and Sunak replies:
I probably wouldn’t tell you if I was.
This promotes proper laughter."
Wow he has got a sense of humour....
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X201
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Post by X201 on Mar 26, 2024 17:33:24 GMT
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